Tech retreat hits Nasdaq; GM lifts Dow

Tech down even as Intel sees strong laptop-chip demand

By

SusanLerner

NEW YORK (MarketWatch) - A retreat in technology led U.S. stocks lower Friday but blue-chips were buoyed by sharp gains in General Motors Corp. amid optimism the world's largest automaker may be able to address its health-care issues.

"There's definitely some profit taking going on in tech and that's obviously spilled over," said Tim Heekin, head of stocktrading at Thomas Weisel Partners.

The Dow Jones Industrial Average
DJIA, -0.30%
closed up 9.61 points, or 0.1%, at 10,512.63 while the Nasdaq Composite Index
$COMPQ
shed 13.91 points, or 0.7%, to 2,063 and the S&P 500
SPX, -0.20%
lost 2.82 points, or 0.2%, to 1,198.11.

The major indexes were mixed on the week, as well, with the Dow adding 0.5% and the S&P edging up 0.2% but the Nasdaq giving up 0.4%.

In the broader market, decliners narrowly outpaced advancers 1,621 to 1,583 on the New York Stock Exchange while holding an 8 to 7 edge on the Nasdaq. Big Board volume was just about 1.25 billion shares while almost 1.45 billion traded on Nasdaq.

"We can't get anything going on the upside, can't get anything going on the downside. It's more of a rotating type market that's running quickly in place," said Paul Nolte, director of investments at Hinsdale Associates.

Declines came despite Intel Corp., late Thursday, boosting its second-quarter financial targets, citing strong demand for its chips used in laptop computers.

"I think this is a little bit anticlimactic," Nolte said, noting that technology got a pretty good rally earlier in the week after Texas Instruments Inc.
TXN, -0.29%
lifted its outlook.

In its midquarter update, the world's largest chipmaker
INTC, -0.83%
estimated sales at $9.1 billion to $9.3 billion, up from its prior forecast of $8.6 billion to $9.2 billion. See full story.

After popping 2.2% before the report Thursday, Intel weighed in as the Dow's biggest decliner Friday, off 2.6%.

John Hughes, managing director of Epiphany Equity Research, nevertheless, sees the Intel news as a general positive.

"It's maybe not a huge boost for Intel...but confirmation of this general improvement maybe in the economy or within technology, specifically semiconductors. So I think on balance it's still a strong indicator or a positive," Hughes said.

Cushioning the blow to the Dow was General Motors
GM, +1.43%
surging 8.5% on reports the United Auto Workers union may be willing to negotiate health care issues with the automaker. Read more.

"The fact that the UAW appears to be willing to negotiate and that some type of deadline has been set is an incremental positive," Morgan Stanley told clients.

Du Pont climbed 1.9% as J.P. Morgan added the chemical giant to its Focus list while setting a $55 June 2006 price target for the shares.

Also within the Dow, Citigroup Inc.
C, -1.32%
finished down 0.1% after agreeing to pay $2 billion to settle a class action suit brought by Enron stock and bond holders. They had sued the company for its role as banker and adviser to the bankrupt energy giant. See full story.

In another settlement, Eli Lilly & Co.
LLY, +0.04%
agreed to settle about 8,000, or 75%, of the claims against the company related to its schizophrenia medication, Zyprexa. Lilly shares slipped 0.1%. See full story.

In the latest economic news, the Commerce Department said the U.S. trade deficit widened 6.3% in April to $57 billion -- in line with the consensus forecast of Wall Street economists. See Economic Report.

The Labor Department, meanwhile, said the price of imported goods fell 1.3% in May, dropping for the first time since December. Read more.

Also, the Treasury Department said the federal budget deficit fell to $35.3 billion in May - the lowest May deficit in four years. See full story.

In the currency market, the euro was down 0.9% at $1.2117 after falling as low as $1.2106 - it's weakest level vs. the dollar since September. The dollar was up 1% at 108.59 yen. See Currencies.

Treasury prices fell, pushing yields higher with the yield on the benchmark 10-year note rising to 4.05%. See Bond Report.

In the energy pits, July crude futures dropped 74 cents to close at $53.54 a barrel on the New York Mercantile Exchange. See Futures Movers.

The August gold contract climbed $2.90 to $429.30 an ounce in New York. See Metals Stocks.

Focus stocks

In addition to Intel, fellow semiconductor company LSI Logic Corp.
LSI, +0.42%
increased its second-quarter revenue guidance to a range of $465 million to $475 million from its previous range of $450 million to $465 million, citing strength in storage components. LSI shares lifted 3.9%. See full story.

Outside tech, Northrop Grumman Corp.
NOC, +1.40%
said it expects to confirm the financial estimate it delivered April 28 at investor meetings it is holding in conjunction with the Paris Air Show.

In April, the defense contractor raised its forecast for 2005 earnings from continuing operations to a range of $3.70 to $3.85 a share from $3.60 to $3.75. Northrop Grumman shares added 0.4%.

Polo Ralph Lauren Corp.
RL, +1.10%
meanwhile, said fiscal fourth-quarter net income fell to $23.4 million, or 22 cents a share, versus $76.4 million, or 75 cents, a year earlier. On an adjusted basis, earnings would have been 81 cents a share, or a penny ahead of analysts' expectations. Revenue grew to $902 million from $819 topping the $859 million average analyst forecast.

For the first quarter, the New York fashion company projects revenue will grow more than 20% over the year-earlier period. Fiscal 2006 earnings are still expected to be $2.75 to $2.85 a share, in line with Wall Street forecasts. Polo shares popped 8.8%.

Finally, Brocade Communications Systems Inc.
BRCD
said the Securities and Exchange Commission opened a formal probe into the company's accounting for certain stock options.

Two days ago, Brocade said it would delay the filing of its second-quarter report. The company said its audit committee was examining its treatment of stock options "regarding leaves of absence" from 2001 to 2004. Last month, Brocade said it would restate results for each of those years to take into account higher stock-option expenses than initially reported. Shares finished the day unchanged.

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